Leave Manufacturing in the U.S. – Ex-Chairman of Intel.

Just a week after Intel Corp. started negotiations with Israel regarding building one or two new fabs in the country, Andy Grove, the legendary former president, chief executive officer and chairman of the world’s largest maker of chips, said that the United States should stop outsourcing production to other countries, but rather keep manufacturing home.

“Bay Area unemployment is even higher than the 9.7% national average. Clearly, the great Silicon Valley innovation machine hasn’t been creating many jobs of late – unless you are counting Asia, where American technology companies have been adding jobs like mad for years. […] Today, manufacturing employment in the U.S. computer industry is about 166 thousand – lower than it was before the first personal computer, the MITS Altair 2800, was assembled in 1975. […] An effective computer-manufacturing industry has emerged in Asia, employing about 1.5 million workers,” Andy Grove wrote in a column in BusinessWeek.

Andy Grove lead Intel during the most dramatic parts of its history. During his tenure, he transformed Intel from a memory maker into the world’s largest manufacturer of central processing units. But quitting the market of memory essentially meant outsourcing of production of commodity products to Japanese and then to South Korean, Taiwanese or Chinese makers. But this is it, claims, Mr. Grove. In order to be successful in new technologies eventually, they should be manufactured in the U.S.

“A new industry needs an effective ecosystem in which technology knowhow accumulates, experience builds on experience, and close relationships develop between supplier and customer. The U.S. lost its lead in batteries 30 years ago when it stopped making consumer-electronics devices. […] U.S. companies didn’t participate in the first phase and consequently weren’t in the running for all that followed. I doubt they will ever catch up,” said Mr. Grove.

According to the former head of Intel, who once managed to transform the chipmaker into the world’s most capitalized firms, the cost of creating U.S. jobs grew from a few thousand dollars per position in the early years to $100 thousand today because companies hire fewer employees as more work is done by outside contractors, usually in Asia. Even though the high-value work – and much of the profits – remain in the U.S., the unemployment is growing due to massive outsourcing, according to Mr. Grove.

“But what kind of a society are we going to have if it consists of highly paid people doing high-value-added work – and masses of unemployed?,” asks the former head of Intel.

But the remedies offered by Andy Grove are rather controversial.

“The first task is to rebuild our industrial commons. We should develop a system of financial incentives: Levy an extra tax on the product of offshored labor. […] Keep that money separate. Deposit it in the coffers of what we might call the Scaling Bank of the U.S. and make these sums available to companies that will scale their American operations. […] Unemployment is corrosive. If what I’m suggesting sounds protectionist, so be it,” said the ex chief of Intel.

Protectionism? Well, Andy Grove, was not the first or the last high-ranking executive, who ceased to produce memory in the U.S. because Intel could not efficiently compete on the market against Japanese companies. Back in the eighties Intel needed to redevelop itself, which it managed to do successfully. Perhaps, protectionism needed to be started a lot earlier?